Consumers often make the mistake of lumping debt settlement and debt consolidation services together. In reality, though, debt settlement and consolidation are two extremely different financial tools. And consumers should know that they each come with their own potential pitfalls and rewards.
The purpose of working with a debt settlement company is, not surprisingly, to eliminate debt. Consumers who work with debt consolidation companies, though, have a different goal: They want to consolidate bills. When consumers take out a debt consolidation loan, all of their debts are lumped into one monthly payment. As long as consumers make this payment on time each month, they’ll gradually pay down their outstanding debt. They’ll also keep the collection agencies from calling. For many, debt consolidation is an affordable, effective way to erase the stress of overwhelming debt. Other consumers, though, require a different level of debt services: Debt settlement.
Eliminating, Not Consolidating, Debt
Consumers who work with debt settlement companies must do their research carefully before signing up with any one firm. That’s because the debt settlement industry, unfortunately, is filled with fly-by-night companies that have been accused of taking advantage of desperate consumers. However, there are plenty of hard-working, ethical debt settlement firms out there, too. These are the ones that consumers need to find if they truly want to eliminate debt. Debt settlement firms work directly with consumers’ creditors, negotiating debt reductions from each of them. Debt settlement companies won’t necessarily be able to eliminate all of the debt that consumers hold. But they can reduce this amount, making it easier for consumers to pay back what they owe.
The Questions to Ask
The key is for consumers to ask the right questions before signing up with any debt settlement company. First, consumers should ask exactly what fees the settlement firm will charge them for the debt services they provide. They should also make sure that these fees are only charged after the debt settlement company provides the services it promises. Most debt settlement scams happen when debt settlement companies charge advance fees the work they perform. Consumers should also ask these companies exactly how they plan to reduce the debt they owe, and how much debt they think they can eliminate. Consumers should steer clear of debt settlement companies who promise too much. Consumers who owe large amounts of debt will have to pay something to their creditors. Companies that promise to totally eliminate completely these consumers’ debt are not being truthful. By doing the proper research, and by knowing the difference between services that consolidate bills and settle debt, consumers can give themselves the protection they need.